While investing in any company, investors should go through all financials and other ratios to get good returns and keep their investments safe. While analysing, most of the investors also study Promoters Holding and the decrease/increase in Promoters Holding in previous quarters & Years. In this article we will discuss 4 such Reasons to avoid stocks with high promoters pledge.
However, few people forget to analyse the Promoters Pledge, which is also a very important factor. Analysis of Promoters Holding is incomplete without analysing how much per cent of total shareholding is pledged.
Generally, promoters pledge their existing holding to invest in other ventures for personal use or to repay any other debt. For your convenience, I have also curated a list of stocks with highest promoter pledge.
Here are a few reasons why a high promoter's pledge is a 'Red Flag' for investors
- High promoter pledging shows a lack of confidence of the promoter.
- Under challenging times of the market, if Shares fall rapidly, then Bank may give Margin Call to the promoters. If the promoters fail to repay such due Banks me Sell such shares which are pledged by promoters. This will lead to a high supply of stocks in market and cause rapid fall in shares of company.
- High promoter pledging is also considered risky since it indicates Promoters might be having some liquidity issue
- High promoters pledging also indicates that promoter groups other ventures might be debt trapped.
That being said, it’s also better to avoid stocks with high promoter pledges. While choosing stocks, I like to pick companies with increasing Promoter holding, Fii holding and Institutional holdings. Happy investing!
